Vote
[NGV-08] List syzUSD as an Isolated Neverland Market
Summary
This is a revised version of NGV-03, which was rejected. We listened to every reason given in the vote, and to the follow-up questions raised by the Neverland team and community since, and rebuilt the proposal around them.
The goal is unchanged: onboard syzUSD as a collateral-only asset on Neverland on Monad, because it creates something Neverland currently needs more of: paying borrowers of USDC, USDT0 and AUSD. syzUSD holders loop their position, which means they borrow stables and pay interest. That interest goes to the stablecoin suppliers of the market and to the protocol. syzUSD is the collateral; the revenue comes from the stables people borrow against it.
What has changed since NGV-03:
- A fully isolated market, not an option. syzUSD launches in a dedicated isolated market, separate from the unified lending market, with its own stablecoin liquidity and a hard borrow cap. The main market is structurally out of reach. Merging into the unified market would require a separate governance vote.
- The full market economics, written down. Real numbers: syzUSD yield, target borrow rate, looper net returns, supplier returns, and the honest size of the gap that incentives need to bridge during bootstrap. Nothing is left implicit this time.
- More conservative launch parameters. Initial LTV lowered to 70% (from 75%), with a hard launch supply cap and a hard borrow cap stated up front.
- Incentives redirected to lenders, capped, and gated on results. Incentives go to the stablecoin suppliers of the isolated market, sized as a top-up toward a target supplier APY, and only continue if the market generates real borrow demand.
- Market sizing scenarios, so voters and the team can judge the logistics and the incentive budget before approving anything.
- Explicit commitments from Yuzu, including direct presence in the Neverland community.
What Changed Since NGV-03 (Point by Point)
The NGV-03 vote failed with recurring objections. Here is each one, and what this proposal does about it.
“Too much risk, not enough upside for the existing platform. The upside goes to the Yuzu team and whales.”
The upside to Neverland is borrow-side revenue, and it is now spelled out in full below with real numbers (see “How This Listing Makes Neverland Money” and “Market Economics”). Loopers cannot loop without borrowing stables and paying interest into the market. Whales looping harder means more interest paid to Neverland’s suppliers and protocol, not less.
“I’d be open to a different proposal if this lived in an isolated pool with no access to the unified lending market.”
Done. This proposal is for a dedicated isolated market with its own stablecoin liquidity. It does not draw on the unified market’s liquidity at all. Merging it into the main market later would require a new governance vote.
“Revise the proposal. Isolation pool. Re-propose.”
This is that re-proposal.
“Liquidity on-chain is limited to very few wallets. Thin holders, thin liquidity.”
The holder data cited in the vote was the syzUSD token on Monad, which is the newly bridged representation, not where the asset lives. syzUSD’s home chain is Plasma, where liquidity is deep, and more importantly the asset is redeemable at the primary level: yzUSD redeems 1:1 for its backing through Yuzu (KYC required), near instantly. Secondary market depth on Monad is a convenience, not the exit. The full reasoning is in “Liquidity and Redeemability” below.
“With conservative parameters, please.”
Initial parameters are now 70% LTV / 75% LT / 10% LP, with an explicit launch supply cap and borrow cap, both stated in this proposal rather than left open.
“We should not be diverting DUST rewards to assets with few actual owners.”
Incentives are now capped, directed at the lenders who make the market work, and conditional on realized stablecoin borrow demand. No borrow demand, no continued incentives.
Background
(Unchanged in substance from NGV-03. Readers familiar with it can skip to the next section.)
Yuzu Money is a Yield-as-a-Service protocol connecting on-chain yield strategies to the fintech ecosystem, combining on-chain strategies with institutional-grade RWAs.
yzUSD is an overcollateralized, asset-referenced stablecoin targeting $1. It is the senior tranche of a tranched system, backed by short-dated treasuries, high-grade structured credit, overcollateralized loans and market-neutral strategies. It does not bear yield in its base form.
syzUSD is the staked, yield-bearing form of yzUSD: an ERC-4626 vault token whose share price appreciates as yield accrues weekly. 1 syzUSD is worth a growing amount of yzUSD, and yzUSD is worth approximately $1. syzUSD currently yields approximately 8% APY, and we do not expect this to move materially in the short to medium term.
Loss protection: syzUSD does not absorb first losses. A junior first-loss tranche (yzPP, the Yuzu Protection Pool) and a Reserve Fund absorb losses before senior yzUSD holders are affected.
Operational security: Fordefi MPC custody (SOC 2 Type II), Hypernative/Sentinel real-time threat monitoring, independent zero-knowledge proof of solvency by Accountable, and audits by Pashov and Dedaub.
How This Listing Makes Neverland Money
This section explains the mechanism from start to finish, with no steps skipped.
Step 1. A syzUSD holder deposits syzUSD in the isolated market as collateral. On its own, this earns Neverland nothing. Collateral just sits there.
Step 2. That user now borrows USDC, USDT0 or AUSD against it. This is the entire reason they came: syzUSD yields ~8% while the target borrow rate sits around 6%, so borrowing stables against syzUSD, buying more syzUSD and repeating (looping) is profitable for them.
Step 3. Borrowing is not free. The looper pays the borrow rate on every dollar of stables they borrow, for as long as the loop is open. This is the revenue event.
Step 4. That interest is split the standard way: the stablecoin suppliers of the isolated market earn it as supply APY, and the protocol’s reserve factor share goes to the treasury. To accelerate the bootstrap, we suggest the team consider launching this market with a low or even zero reserve factor, routing all borrow interest to suppliers at first and introducing the protocol cut once the market is established. We understand from our discussions with the team that there is openness to this idea; the final setting remains entirely at the team’s discretion.
Step 5. Competitive supply APY attracts stablecoin deposits to the isolated market. The market grows, borrow revenue grows with it, and the veDUST flywheel gets fed by real interest instead of pure emissions.
Worked example with real numbers. A looper deposits $1M of syzUSD (yielding ~8%) and loops at 70% LTV, reaching roughly 3x exposure: $3M of syzUSD held, $2M of stables borrowed at ~6%. Their gross yield is 3 × 8% = 24% of equity; their borrow cost is 2 × 6% = 12%; their net return is ~12% APY on a fully stable position. Meanwhile they are paying $120,000 per year of interest into the market on that $2M borrowed. This is why a “2% spread” is not thin: leverage multiplies it on the looper’s equity, while every borrowed dollar pays interest to Neverland’s side of the table. Before this listing, that borrow demand simply does not exist on Neverland.
To be direct about who gets what: Yuzu benefits because their asset gets a leverage venue. Neverland benefits because it sells the leverage. Loopers pay for it. That is the trade, and it is the same trade every major lending market makes with yield-bearing collateral (sUSDe on Aave being the canonical example).
Market Economics and Rate Design
An isolated market has to attract its own liquidity rather than use the liquidity already sitting in the unified market. That only works if the numbers make sense for all three participants at the same time. Here they are, stated plainly.
The three constraints:
- The looper needs roughly a 2% spread between syzUSD yield (~8%) and the borrow rate to make looping worthwhile. That points to a target borrow rate of ~6% at optimal utilization. As shown above, at ~3x leverage this nets the looper ~12% APY, which is what actually pulls borrow demand in.
- The stablecoin supplier can currently earn roughly 5 to 6% on Monad by simply depositing raw USDC or USDT0 elsewhere. At a 6% borrow rate and a realistic ~80% utilization, base supply APY in this market is ~4.8% before any protocol cut. That is below the outside option.
- Therefore the market does not equilibrate organically at launch. We say this ourselves rather than leaving it for someone to discover: there is a gap of roughly 2% between what suppliers can earn here organically and what makes them move. Bridging that gap during the bootstrap phase is precisely, and only, what the incentives in this proposal are for. As the market matures (higher caps, sticky borrow demand, protocol cut phased in), the dependence on incentives is designed to fall away, not to become permanent.
Interest rate curve. We propose, and defer to the team on final construction, a deliberately gentle curve: borrow rate reaching ~6% at an optimal utilization around 80 or 90%, with a moderate slope beyond it rather than a punitive spike. High utilization in this market should not be scary: it is the healthy state of a looping market, the elevated rate compensates suppliers who cannot withdraw immediately, and a predictable curve keeps loopers from being liquidated or scared off by rate shocks. This matches the design direction the Neverland team has already outlined.
Incentive design. Incentives are directed at the stablecoin lenders of the isolated market, because they are the scarce side. They are sized as a top-up toward a target total supplier APY of ~7%+ (base APY from borrow interest plus incentives), which is meaningfully above the raw stable yields available on Monad today. They are capped, published in advance, and demand-gated: continuation beyond the bootstrap period requires the market to show real borrow utilization. If loopers do not show up, incentives stop, and what remains is a dormant, fully contained market costing Neverland nothing.
Market Sizing and Projections
Illustrative scenarios, using the target ~6% borrow rate and a ~7% target supplier APY. All figures are annual run-rates at the stated size, not predictions.
| Bootstrap | Base (launch caps filled) | Growth (post cap raise) | |
|---|---|---|---|
| syzUSD collateral supplied | $1M | $3M | $8M |
| Stables supplied to the market | $1.5M | $2.5M | $6M |
| Stables borrowed | $1M | $2M | $5M |
| Utilization | ~67% | ~80% | ~83% |
| Interest paid by loopers / year | ~$60k | ~$120k | ~$300k |
| Base supplier APY (no protocol cut) | ~4.0% | ~4.8% | ~5.0% |
| Incentive top-up to reach ~7% | ~3.0% (~$45k/yr) | ~2.2% (~$55k/yr) | ~2.0% and tapering |
| Looper net APY (~3x) | ~12% | ~12% | ~12% |
Two things to note. First, the incentive budget required is modest in absolute terms and is always smaller than the interest loopers pay into the market at the same size. Second, growth beyond the Base scenario only happens through the Risk Timelock process after the market has demonstrated real utilization, so the larger numbers are earned, not assumed.
Borrow demand itself is not the constraint: at a ~2% spread on a stable, redeemable, ~8% yielding asset, looping demand is effectively unbounded relative to these caps. The constraint is lender liquidity, which is exactly where the incentives and Yuzu’s own outreach (below) are pointed.
Liquidity and Redeemability
The main data point used against NGV-03 was a Monad explorer link showing few syzUSD holders. That data is real but it measures the wrong thing.
syzUSD’s home is Plasma, not Monad. The Monad token is a bridged representation that is new by definition. Judging syzUSD’s liquidity by its Monad holder count is like judging a stock’s liquidity by how many shares sit in one small foreign brokerage. On Plasma, where the asset lives, DEX liquidity is deep and actively maintained.
The real exit is primary redemption, not DEX depth. yzUSD is redeemable 1:1 against its backing directly with Yuzu, near instantly, for KYC-verified entities. syzUSD unstakes into yzUSD. This means:
- The peg is enforced by arbitrage: if syzUSD ever trades below fair value on any venue, KYC’d arbitrageurs buy it, redeem at 1:1 and pocket the difference. Depegs get bought.
- Liquidators have a reliable exit path that does not depend on thin order books: seize syzUSD at a 10% discount, unstake, redeem at par.
And the proposal assumes none of this works perfectly. Even with the above, this proposal is sized as if liquidity were a live risk: a small launch supply cap, a hard borrow cap, a 10% liquidation penalty and a fully separate market. If a stress event exceeded all of these layers, the loss would be contained to the isolated syzUSD market, not Neverland’s unified pool.
Proposal
Onboard syzUSD as a collateral-enabled, non-borrowable asset in a dedicated isolated market on Neverland on Monad, fully separate from the unified lending market, with the following configuration.
Launch configuration (hard commitments of this vote):
| Parameter | Value |
|---|---|
| Market structure | Dedicated isolated market, no access to the unified lending market |
| Borrowable assets against syzUSD | USDC, USDT0, AUSD only, supplied directly to this market |
| Loan-To-Value (LTV) | 70% |
| Liquidation Threshold (LT) | 75% |
| Liquidation Penalty (LP) | 10% |
| Launch supply cap (syzUSD) | $3M |
| Borrow cap (stables) | $2M |
| Target borrow rate at optimal utilization | ~6% (gentle curve, see Rate Design) |
| Borrowing of syzUSD itself | Disabled |
Parameter progression. Caps may be raised progressively through the existing Risk Timelock process as utilization, liquidity and asset performance justify it. LTV/LT/LP may progress toward a maturity configuration (max 85% LTV / 90% LT / 5% LP) under the same process. Merging this market into the unified lending market is explicitly excluded from team discretion and requires a new governance vote.
Reserve factor. Set at the team’s discretion. We suggest considering a low or zero reserve factor at launch to route all borrow interest to suppliers during the bootstrap, phasing the protocol cut in once the market is established.
Oracle path. syzUSD is priced by composing two legs via Redstone feeds with sanity bounds and staleness checks: the syzUSD to yzUSD ERC-4626 exchange rate (which only rises) multiplied by the yzUSD to USD peg. Listing remains gated on this oracle path being live and reviewed.
Incentives (lender-directed, capped, demand-gated). An initial incentive allocation directed at the stablecoin suppliers of the isolated market, sized as a top-up toward a target total supplier APY of ~7%+, for a fixed bootstrap period. Continuation beyond the bootstrap period is conditional on demonstrated borrow utilization. Exact sizing, vehicle and thresholds are set by the team and published before activation.
Commitments from Yuzu
- Yield stability. syzUSD yield is stabilized around 8% APY and we do not expect it to move materially in the short to medium term. The economics in this proposal are built on that number.
- Direct presence and accountability. A member of the Yuzu team, Starny, has joined the Neverland Discord and the holders channel, and will remain directly available to governance participants and lenders for questions, data requests and ongoing reporting on the asset.
- Bringing our own liquidity, not redirecting Neverland’s. Yuzu will actively bring its own users and lenders to this isolated market. The goal, shared with the Neverland team, is to create new users and new deposits for both protocols, not to migrate TVL from other Monad protocols into a different wrapper.
- Open books. Yuzu maintains independent proof of solvency via Accountable and will support any due diligence the Neverland risk team or community members want to run before or after listing, including on total assets, redemption behavior under stress, and TVL composition.
Risk Considerations
Asset risk. syzUSD depends on Yuzu Money’s strategy performance and on the integrity of the yzPP junior tranche and Reserve Fund. A loss exceeding the junior tranche could impact syzUSD holders, including suppliers in this market. Mitigation: first-loss tranche, Reserve Fund, independent proof of solvency, audits, and containment of any impact to the isolated market.
Oracle risk. Composed Redstone feeds with sanity bounds and staleness checks; listing gated on review.
Liquidity risk. Unstaking syzUSD to yzUSD is subject to an unstaking window; primary redemption requires KYC. Mitigation: 10% liquidation penalty giving liquidators margin to bridge the window, small caps, and Plasma DEX liquidity as an immediate secondary path. See “Liquidity and Redeemability” above.
Bootstrap risk. The honest risk of this proposal is not contagion but inertia: lenders may be slow to arrive despite incentives. In that case the market stays small, incentives stop at the end of the bootstrap period per the demand gate, and Neverland has lost nothing except a capped, pre-published incentive budget. The downside of failure is boredom, not losses.
Smart-contract risk. Standard ERC-4626 and protocol risk, mitigated by Pashov and Dedaub audits, Fordefi MPC custody, Hypernative/Sentinel monitoring and Accountable proof of solvency.
Contagion risk. Addressed structurally: this is a separate isolated market with its own liquidity. syzUSD collateral can never back borrows in the unified market, and no position in this market touches the main pool’s solvency. The unified lending market is not exposed to this listing.
Governance Approval
Participants approving this vote authorize:
- Listing syzUSD as a collateral-enabled, non-borrowable asset in a dedicated isolated market on Neverland on Monad, gated on the Redstone oracle path being live and reviewed and on the risk team’s final security review.
- Launch parameters of 70% LTV, 75% LT, 10% LP, a $3M syzUSD supply cap and a $2M stablecoin borrow cap, with an interest rate curve targeting ~6% borrow at optimal utilization, final curve construction at the team’s discretion.
- Progressive cap and parameter adjustments through the Risk Timelock process, up to a maximum of 85% LTV / 90% LT / 5% LP, explicitly excluding merging this market into the unified lending market, which requires a separate governance vote.
- A capped, lender-directed incentive allocation for a fixed bootstrap period, sized as a top-up toward a target total supplier APY of ~7%+, with continuation conditional on demonstrated borrow demand, sizing and thresholds published by the team before activation.
Voting Options
- Approve Listing
- Reject Listing
- Abstain
Execution Considerations
Upon approval, the Neverland team and risk partners complete the final risk and security review, coordinate with Yuzu Money and Redstone on oracle finalization, construct the interest rate curve, and configure the isolated market with the launch parameters above. Collateral is enabled with borrowing of syzUSD disabled. Lender incentives activate after listing, with sizing and the demand threshold published first. All subsequent changes flow through the Risk Timelock, except merging into the unified market, which returns to governance.
Closing Statement
NGV-03 asked the community to trust that the details would be handled well. The community said no, and gave reasons. This proposal removes the need for trust on every point that was raised: the market is fully isolated, parameters are conservative and written down, exposure is hard-capped, the economics are published including the part that is unflattering, and incentives only flow if borrow demand flows.
What remains is the simple economic case: syzUSD loopers are paying customers for stablecoin liquidity, netting ~12% on a stable position while paying ~6% interest into a market that is structurally incapable of harming the rest of the protocol. The downside of failure is a capped incentive budget and a quiet market. The upside is new, recurring, real borrow revenue and new users for both protocols.
We ask voters who rejected NGV-03 for the reasons above to check whether this version answers their objection, and if it does, to vote Approve.